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Five Scenarios for Digital Media in a Post-Napster World

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Five Scenarios for Digital Media in a Post-Napster World Research Publication No. 2003-07 11/2003 Five Scenarios for Digital Media in a Post-Napster World GartnerG2 The Berkman Center for Internet & Society at Harvard Law School This paper can be downloaded without charge at: The Berkman Center for Internet & Society Research Publication Series: http://cyber.law.harvard.edu/publications The Social Science Research Network Electronic Paper Collection: http://papers.ssrn.com/abstract_id=XXXXXX Five Scenarios for Digital Media in a Post-Napster World By GartnerG2 and The Berkman Center for Internet & Society at Harvard Law School 0. Introduction This document—a joint effort between GartnerG2 and the Berkman Center for Internet & Society—presents five possible scenarios for copyright law applicable to digital media in the United States. Descriptions of each scenario were developed by Professors William Fisher and John Palfrey of the Berkman Center at Harvard Law School. The outcomes of each scenario were developed by GartnerG2 as “first takes” on the implications that changes in copyright law will have on future business models and markets. The intent of this paper is to spark reasoned discussion and debate that can assist in the development of new business models for the entertainment industry, artists and technology companies, while enabling consumers to legitimately acquire and manipulate copyrighted digital media. These scenarios will be the basis for several working sessions at the upcoming conference sponsored by the Berkman Center and GartnerG2, to be held 18 September 2003 at the Harvard Law School in Cambridge, Massachusetts. Feedback from those work sessions will be compiled and posted on both the GartnerG2 and Berkman Web sites. This document is a supplement to “Copyright and Digital Media in a Post-Napster World,” available on GartnerG2.com, and also at cyber.law.harvard.edu/home. WP-0903-0003 GartnerG2.com © 2003 Gartner, Inc. and The Berkman Center for Internet & Society. All rights reserved. Page 1 of 15 1. The No-Change Scenario This scenario is based on the assumption that in the next five years, U.S. copyright law governing digital media will remain the same. That is, the Digital Millennium Copyright Act—known as DMCA—is still enforced, though irregularly, and confusion over central doctrines like fair use remain unresolved. In this scenario, we presume that: • The pace of the technology evolution echoes the trajectory of the past five years: quick and nimble, and still sparking legal and technological arms races. • Enforcement efforts by copyright holders and government entities achieve minimal results. • The prevailing opinion among individuals engaged in retail, rather than wholesale, piracy is that they stand little chance of being caught. • Widespread file-sharing via peer-to-peer (P2P) sites continues as improved technology and bandwidth facilitate greater levels of piracy. Legal alternatives gain some traction, but not enough to stop online file-sharing of copyrighted digital media. Consumers still think that digital media may be obtained online for free. Figure 1: No-change scenario Content Technology Internet service owners Artists CE vendors providers Revenues Costs Consumer value Source: GartnerG2, September 2003 WP-0903-0003 GartnerG2.com © 2003 Gartner, Inc. and The Berkman Center for Internet & Society. All rights reserved. Page 2 of 15 Revenues Content owners and artists: In this scenario, revenues will keep shrinking as piracy thrives and copyrighted materials are traded largely unfettered via P2P file-sharing services. Artists’ losses will be less substantial than those of the music labels because more of their revenue is derived from performances. Live performances should grow in this scenario, driven by the Internet’s promotional and transactional capabilities. Attempts to curtail piracy via legal and regulatory means continue to flounder with cases being decided both for and against entertainment industry organizations, with no clear mandate. The regulatory bodies will continue to debate the merits of various legislative solutions, but no significant bills will emerge. Technology and consumer electronics companies: Revenues should grow moderately as digital distribution of media properties proliferates. Digital media is still perceived to be free by a portion of the U.S. population, so large numbers of individuals will accumulate large collections of digital media including television, movies and music. Consumers want flexibility in using these media files and expect multiple playback devices. Consumers will need more storage for their media files and new devices to facilitate digital media playback. Internet service providers (ISPs): Revenues should grow as more digital media is made available and attracts new subscribers. Also, the desire for richer media content such as movies and TV programming will drive the desire for higher bandwidth connections. However, these gains will probably be offset by increasing legal costs as ISPs deal with on-again, off- again enforcement efforts by copyright holders. Costs Content owners: Costs will rise as content owners attempt to protect their digital assets through educational, legal and lobbying efforts. Research and development costs will rise as media companies—either singly or in partnerships—work on technology that protects digital assets. The resulting products will prove ineffective as increasing numbers of hackers will crack protection schemes, rendering industry efforts useless. Artists: Costs will rise as artists spend more time on promotions and tours to make up for lost revenues from product sales. Some artists will also incur costs associated with protection of their intellectual property while others will see piracy as promotion for their performances. Technology and consumer electronics companies: Research and development costs will rise slightly in response to the demand for new digital media playback devices. Marketing costs will also rise as they promote these new products to consumers. However, the increased costs should be offset by new product revenues. WP-0903-0003 GartnerG2.com © 2003 Gartner, Inc. and The Berkman Center for Internet & Society. All rights reserved. Page 3 of 15 ISPs: Costs will rise slightly as ISPs will be forced to bear a small portion of the costs associated with monitoring piracy. The increased revenues from service upgrades and new subscribers should offset these costs. Consumer value: Consumers will see some value in the no- change scenario since large quantities of digital media content will be available for free or relatively inexpensive as companies offer low-cost alternatives to illegally available media—in an attempt to recapture at least a portion of lost revenues. However, there is a significant risk of market shrinkage over time as copyright holders/creators put fewer products into a market still fraught with piracy, etc. Conclusion This scenario is the least likely to play out, as the entertainment industries are not likely to sit still and see their business models slowly destroyed. Media companies have already attempted to address piracy via legal, regulatory and technology solutions. They will continue to pursue solutions to what they perceive as an attack on their traditional business models. However, it is likely that the no-change scenario will prevail in the immediate future as efforts so far have yielded minimal results and piracy is still widespread. We look for elements of the no-change scenario to be present for some time into the future. WP-0903-0003 GartnerG2.com © 2003 Gartner, Inc. and The Berkman Center for Internet & Society. All rights reserved. Page 4 of 15 2. The Taking Property Rights Seriously Scenario The second scenario forecasts what may happen if owners of digital content are more successful than they have been to date in their efforts to protect against unauthorized use and copying. This scenario follows one of the rhetorical strains of advocates of intellectual property rights—that intellectual property rights should align more closely to other property rights. Implicit in this rhetoric is that a copyright is a property right, and so infringement of a copyright is equivalent to the seizure, destruction or invasion of a piece of property, either personal or real. Such a revised view of intellectual property rights would change the digital media debate substantially. This second scenario involves legal reform and is linked conceptually to the third scenario, which involves technological change. The two ideas are joined by the notion that in both instances, holders of intellectual property rights in digital media will have a stronger grip on their intellectual property. The two ideas diverge in terms of how those rights are established and enforced. As such, the two ideas are conceptually severable. Figure 2: Taking property rights seriously scenario Content Technology Internet service owners Artists CE vendors providers Revenues Costs Consumer value Source: GartnerG2, September 2003 Revenues Content owners: As the financial threat of piracy decreases, we expect revenues from the sale of physical products (CDs and DVDs) to increase. Additionally, the migration to electronic distribution of content can be slowed or curtailed, depending on WP-0903-0003 GartnerG2.com © 2003 Gartner, Inc. and The Berkman Center for Internet & Society. All rights reserved. Page 5 of 15 the needs of media companies and copyright holders, not markets. Artists: Artist royalties will increase as sales of physical products recover from the losses to
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